June 21, 2024

3 Factors to Consider When Applying for Fix & Flip Loans

3 Factors to Consider When Applying for Fix & Flip Loans

To be successful at flipping houses, you’ll need access to capital to buy properties. While some investors start with their savings, this can limit the number of properties they can purchase, especially if they are new to the business.

Another option is getting financing from banks or other traditional lenders, but this can be extremely difficult because banks usually don’t lend on properties that need work. Banks also prefer borrowers with good credit ratings and financial histories, and if you’re just starting in real estate investing, you may not qualify for traditional bank loans.

An alternative option is using hard money loans for fix & flip projects. If you’re looking for further information.

What are Fix and Flip Loans?

Fix and flip loans are financing types that allow you to borrow money to purchase, renovate, and sell a house. This is typically a short-term loan, usually lasting 6-12 months, broken down into four parts: purchase, renovation, interest-only payments while the property is being renovated and sold, and then a balloon payment due at the end of the loan term.

Factors to Consider When Applying for Fix & Flip Loans

Thinking of taking out a fix & flip loan to finance your next house flip? Here are some factors you should consider:

1. Closing Speed

Closing speed is when it takes to close a loan and get money into the borrower’s account. A short closing speed is essential for fix and flip loans because borrowers may need funds quickly to purchase a property or cash out on a previous investment.

Choosing a lender with quick turnaround times will also allow you to respond more quickly in a bidding situation, making it easier to win profitable deals. The longer it takes to close a loan, the more likely you will lose out on an investment opportunity.

2. Underwriting Flexibility

Most lenders require a borrower to provide proof of income, credit history, and assets. However, if your current income is not sufficient to show a lender that you can repay the loan, they may be willing to consider other factors in the underwriting process. 

Some lenders will consider the property’s value after it is renovated, the equity in your deal, your experience as an investor, and even allow for co-borrower income.

3. Interest Rates

Interest rates are the cost you pay to borrow money, and can vary widely from lender to lender. For instance, many lenders will offer options that differ by as much as 3-4 percent on a typical fix and flip loan. This means that if you select a higher rate, it could end up costing you tens of thousands of dollars throughout the loan.

If you’re trying to decide between two lenders with similar terms but different interest rates, consider looking at their ‘all in costs’ to see a more accurate estimate of what your actual costs would be. All prices include fees, interest rate, and other factors that may not be included with the advertised interest rate.

To Sum it Up

Fix, and flip loans are attractive because they allow you to take advantage of distressed houses in your market without tying up your capital. The goal is to make enough profit on the sale of the property to pay off the loan plus interest plus any additional fees associated with obtaining the loan. 

There are many different types of fix & flip loans available to property investors, and the requirements for these types of loans vary depending on the lender and the loan program.

Avatar for Radhe Gupta

Radhe Gupta

Hello, I am Radhe. I am absolutely in love with writing and by working with News Whizz, I have developed a passion for it. It helps me to stay updated and know what is happening around the globe.

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